Supplier evaluation is vital for sourcing strategies

From having 150 partners, the company downsized its supplier pool and worked on strengthening relationships, including offering to help factories boost their efficiencies.

Pacific Brands (Asia) sources 60 to 70 percent of its products from China. A leading manager of Everyday Essential Brands, one of Australia's largest importers of consumer goods from Asia, the company is organized into four key operating groups: underwear & hosiery, outerwear & sport, home comfort, footwear.
Smriti Ranjan Bhowmik, regional manager at the Shanghai representative office, talks about the company's supplier evaluation and China sourcing strategies.

How do you typically assess a supplier's credibility and quality?

Stability of the supplier is the biggest factor.

Their finances should be strong, and they should be with us for a longer period. We always think that changing suppliers costs us more. So we want to select a partner that can supply to us for at least the next few years.

We used to have maybe 150 suppliers. But over the past four years, we reduced our supplier pool by almost 30 percent. Five years ago, we used to think, "If I can get 5 cents cheaper, I'll go to another supplier."

We have since changed our strategy and decided to work with fewer suppliers instead. In case there is a price issue, we discuss with our supplier and say, "I can get it cheaper from others, but I have come to you first to ask if you can match it." Most of the time, the supplier will match it.

But we still have to continue looking for suppliers, especially when we have new products our current partners may not be able to make. In addition, every year, one or two suppliers will go out of business or not perform.

For suppliers in the inland provinces, passing our social compliance standards has always been a problem. There are two ways to be listed as our supplier. One is either you have a WRAP or BSCI accreditation, or we audit using a third-party inspector.

My advice to factories has always been to improve efficiencies. Those days of being able to hire 20 more workers when needed are gone. Most factories cannot even get 10 additional people who used to work for them.

Will you shift any of your sourcing from coastal cities to inland China or any other countries outside of China?

For us in Australia, the problem is geographical. When we think of going to Bangladesh or India, the lead time is more than double. From Shanghai, we can ship to Melbourne in 14 days. It is very important in the clothing and fashion business to have a fast cycle, and that is driving us to keep most of our business in China even though we know we can get some of the items cheaper in Bangladesh.

In our last costing exercise with an Anhui-based factory, the prices were only 5 to 10 US cents lower than those from Ningbo factories. But the service level of Ningbo factories is much better than any Anhui factory. So, just to save 5 to 10 cents, should we go to Anhui? No, we may not because finally, in one year, they may delay many shipments, or get multiple rejections. That 5 cents, actually, I will evaluate as 15 cents.

It also depends on the buying company. Some companies do not have strict rules. Some companies have strict rules. So when you come to social compliance or social responsibility, the understanding is pretty far behind for the inland province suppliers. But if a major company goes inland and brings all this expertise, thinking and philosophy together, then it may work.

How does the yuan's appreciation affect buyers' sourcing activities in China?

I think the effect will be gradual and that everybody has their own contingency measures in place. Our suppliers have basically given us two options:

  1. Let them quote a hedged price that is fixed to a certain period.
  2. They will provide transparent pricing based on open costing. But we would have to shoulder any cost increases that incur during the period.

For us, it depends on the product. If it is more of a seasonal or fashion item, we accept a hedged price. Otherwise, we prefer transparent pricing.

What is it that suppliers can do to make you stay?

Every factory is losing more workers, so they can not bring back the same number of people year on year. They have to pay more to bring the workers back. We could help the factories to bring more efficiency of production using some of our expertise. That means we have to send some technical advisors to improve their productivity. And then you can do a proper analysis. If today, you make 100 pieces in one hour, and with our help you make 150 pieces, there'll be an increase in productivity. That means that you can decrease your price. So we can increase their productivity. This way we share the benefit. This is kind of encouragement, partnership and also taking care of ourselves and the supplier together.

About the company  
The origins of Pacific Brands can be traced back to 1893 when the business began manufacturing Dunlop bicycle tires. Today, Pacific Brands is a leading manager of Everyday Essential Brands in Australia and New Zealand, marketing some of the most recognized brands, including Berlei, Bonds, Clarks (children's), Dunlop, Everlast, Grosby, Holeproof, Hush Puppies, King Gee, Mooks, Mossimo, Sheridan, Slazenger, Sleepmaker, Tontine and Yakka.

With headquarters in Melbourne, Pacific Brands has operations throughout Australia as well as in New Zealand, United Kingdom, Malaysia, China and Indonesia. The company employs over 9,000 employees worldwide.

For more information, visit www.pacbrands.com.au.

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